In a recent opinion by the U.S. Court of Appeals for the 8th Circuit, an employer’s practice of rounding employees’ timesheets came under fire. A former employee sued the employer, alleging violations of the Fair Labor Standards Act (FLSA) by “failing to fully compensate employees for work performed.” The district court granted summary judgement to the employer, but the 8th Circuit vacated and remanded on appeal.

Facts of the Case
The employer uses an automated timekeeping system in which employees clock in and out. The system records the exact times, then applies a rounding policy for which time clocked within six minutes of the employee’s scheduled start or end time are rounded to the scheduled time. The examples given are:

• If an employee clocks in at 8:56 a.m. for a 9:00 a.m. shift, the time would be rounded to 9:00.
• If an employee clocks out at 4:54 p.m. for a shift that ends at 5:00 p.m., the time would be rounded to 5:00.

Both the former employee and the employer submitted expert reports analyzing the effects of the rounding policy on the employees’ compensation. The reports found, for the most part, that over a six-year period (including over seven million shifts for 13,000 employees), the policy:

• Cut time from about half the shifts,
• Added time to a little over one-third of the shifts, and
• Had no impact on the rest.

The impacts were fairly consistent even if the lookback periods were two, three, or six year.

Looking at it from a per-employee basis, the policy was found to have cut time from almost two-thirds of employees, and added time to about one-third.

Application of the FLSA
Department of Labor regulations do not require employers to pay employees who clock in early or clock out late if the employees are not working during those times. However, the regulations warn that major discrepancies may raise a doubt as to the accuracy of records of hours actually worked. While this case is from the 8th Circuit, the 9th Circuit (which covers Hawaii) has held permissible rounding should be both neutral on its face and as applied.

Regulations also allow for rounding to nearest five minutes, one-tenth, or one-quarter hour, “provided it is used in such a manner that it will not result, over a period of time, in failure to compensate the employees properly for all the time they have actually worked.” The presumption is that the practice should average out so employees are fully compensated for all hours worked.

Employer’s Argument
The employer claimed that if the court found in favor of the employees, it would “upend decades of labor law and nullify the rounding regulation.” It also claimed that requiring employers to perpetually audit their policies would be too burdensome to be worthwhile.

The 8th Circuit countered that the regulation does not require rounding, and rather permits it, subject to the condition mentioned above. The court pointed out that with automated systems, checking for systematic underpayment is easy to verify because the system records exact times. The court held, “there is no administrative hassle. This is not like the old days of punch cards and hand arithmetic.”

Takeaway
This case does not change the current law which permits employers to round employees’ time. However, employers, especially those using automated timekeeping systems, should consider periodically auditing the impacts of the employer’s rounding policies (if any) across multiple time periods and per-employee as well as the group. Employers may want to consider the benefit of using a rounding policy in light of modern technology’s ability to calculate pay based on exact times and the potential risk of the rounding policy to unintentionally tilt in the employer’s favor.